Republican, Democrats Unite to Do Dumb, Bad Thing

“No tax on tips” SOUNDS good, though

It often seems that politics exists in a perpetual stalemate, with Republicans and Democrats unable to find common ground. So, it was notable this week when both parties put aside their differences to advance a Senate bill by unanimous vote! WOW! Deadlock is NOT a foregone conclusion! The cynics are wrong — Republicans and Democrats can still come together to do big things!

If only the thing that they did hadn’t been a huge pile of elephant shit that will make America worse. Unfortunately, it was — the Senate’s “no tax on tips” bill advances a concept supported by virtually no economist in the world. The one thing that our leaders can agree on seems to be that America needs more loophole-ridden legislation that sounds like something that would win fourth prize in a “how I would make America better” grade school essay contest. The Senate bill would complicate the tax code, worsen a tipping epidemic that has already reached the level of a biblical plague, and pander to the working poor without actually helping them. The fact that the Senate joined hands to do this doesn’t warm my heart so much as make me want to move to a cabin in the woods and throw mud at anyone who tries to bother me.

Eliminating taxes on tips sounds good. Waitresses, drivers, and hairdressers work hard — hotel maids pay for humanity’s worst behavior an amount that is borderline Christ-like. We should try to find ways to make their lives better. But a key word in that sentence is “try” — we need to expend effort to find policies that work. What we should not do is pass some simplistic bullshit that falls apart if you think about it for two seconds and then buy ourselves a cake with “CHAMPION OF THE WORKING MAN” written on it.

Most working poor people make their money from wages, not tips. Only five percent of people in the bottom quarter of earners are tipped workers. Many of those people are teenagers, so not the blue collar workers that people imagine, but rather precocious twerps whose lives should be made worse as a matter of principle. There is also no logical reason why front-of-house staff in a restaurant should get a tax break but back-of-house staff should not, and we’re creating an incentive to move all work to tipped work, which is more volatile and makes it harder to win pay increases. We’re pandering to workers that we see, but there’s a much larger group of workers we don’t see — warehouse workers, janitors, and the like — who are probably thinking “fuck you”.

It’s not even clear that tipped workers will be better off. Reducing a person’s taxable income reduces the programs for which they’re eligible, most notably the Earned Income Tax Credit. It’s hard to say who will be made better and worse off by this change — that depends a lot on circumstances — but generally, workers who are middle-class-or-better will benefit most. The government will also take in less revenue, and I know we’ve all convinced ourselves that the government revenue doesn’t matter — the prevailing wisdom is that we can just rack up endless debt and then wriggle out via the “haha I died before you could collect” loophole — but there actually is a relationship between government revenue and social spending.

The strongest argument for this bill seems to be “It won’t actually do anything.” Many have noted that 37 percent of tipped workers already don’t pay income tax, many others pay very little, and a lot of tips aren’t reported anyway. The Senate has also restricted which types of jobs and which types of tips qualify. This seems to be the pattern for all populist policies, from Trump’s tariffs to Kamala’s grocery price caps: Hold a triumphant press conference, have every economist alive tell you that your plan is dumb, and then create a million exceptions and loopholes in an attempt to walk back the stupid. But the caveats create complexity and opportunities for abuse, and good policies don’t have “it doesn’t matter” as a primary selling point.

It’s also odd that we passed a policy to encourage tipped work at a moment when tipping has completely jumped the shark. It used to be that you tipped restaurant violinists for leaving you the fuck alone and prostitutes for not sprinting for the door the minute you said “Teletubbies”. Now, almost every interaction involves a tip. I’m sure that one day soon, my son will give me a hug and then present me with an iPad where the LOWEST tip option is 22 percent. Tips are out of control, the backlash has already begun, and passing a law that will make tipping an even bigger part of our lives seems like a bad move.

The tax code will also become more complex. How much of a tipped workers’ tax break will effectively be negated by the time they spend determining which tips count as “cash” tips and whether social security taxes have been properly withheld under the bill’s reporting requirements? Time is valuable, especially time that you don’t spend navigating the grotesque hall of mirrors that is our tax code. Complexity will only grow if we keep adding bespoke categories of super-special income instead of just treating it all as the same.

If Congress wants to help the working poor, then my first suggestion would be to not pass a budget that does this:

That budget will probably get no Democratic votes, but might get enough Republican votes to pass. Which means that Republicans are hypocrites, because they’re posturing as populists at the same time that they’re engineering an upward transfer of wealth. Democrats are at least not being hypocrites — they’re just being ineffectual morons. And, unfortunately, the “no tax on tips” issue seems to have forged something of a bastard/boob coalition.

Three quarters of Americans support no tax on tips. And at least it’s four word policy idiocy in a country that usually prefers three word policy idiocy like “drain the swamp” or “defund the police” — I guess in that context, four words is practically a white paper. But the policy won’t work. If Congress wanted to help the working poor, they could increase the standard deduction, expand the Earned Income Tax Credit, or enhance direct transfers like the Child Tax Credit; those policies reach people in all jobs and avoid the unintended consequences of no tax on tips. It really is a shame that of all the issues that could have sparked broad bipartisan agreement, this dumb bullshit is the one that did.

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